With the passage of the Tax Cuts and Jobs Act of 2017 a new credit for businesses who provide paid family and medical leave was enacted under Internal Revenue Code Section 45S. The credit currently only applies for wages paid after December 31st, 2017 and before January 1st, 2020. To be eligible to claim the new credit the company must have a written policy that provides:
- At least two weeks of paid family and medical leave (annually) for all qualifying employees who work full time (and prorated leave for all employees who work part time); and
- The paid leave is not less than 50% of the wages normally paid to the employee.
A qualifying employee is any employee under the Fair Labor Standards Act who has been employed by the business for more than one year and who in the prior year had compensation below a threshold. For 2018 the credit can be claimed on any employee who earned less than $72,000 in 2017. For the leave to qualify it cannot be paid vacation time, personal leave, or any leave required by state or local law. To qualify for the credit the paid family and medical leave must be for:
- Birth of an employee’s child and to care for the child;
- Placement of a child with the employee for adoption or foster care;
- To care for the employee’s spouse, child, or parent who has a serious health condition;
- A serious health condition that makes the employee unable to perform the functions of his or her position;
- Any qualifying exigency due to an employee’s spouse, child, or parent being on covered active duty (or having been notified of an impending call or order to covered active duty) in the Armed Forces;
- To care for a service member who is the employee’s spouse, child, parent, or next of kin.
The credit is a percentage of the wages paid up to 12 weeks per year. The minimum percentage is 12.5% and increases to a maximum of 25% based upon the amount paid. The credit increases by 0.25% for each percent the employee’s regular wages paid during leave. For example, if a policy allows for 75% of wages to paid to an employee during qualified medical leave the credit would allow for a 18.75% credit of the wages paid. The amount of the credit is required to be subtracted from the wage deduction on the business’ tax return.
The IRS is expected to release additional guidance in the coming months. If you have any questions about the new Section 45S tax credit for paid family and medical leave contact your DSWD representative or David Leonhardt at (708)631-0186 for more information.